OECD: How Soaring Home Prices Contribute to Inflation

(13 October 2021) Low interest rates, economic stimulus and high uncertainty over the course of the pandemic boosted consumer demand for new homes as well as home prices around the world. To estimate a potential contribution of soaring home prices to overall inflation, we analyzed home price and housing rent data for 33 economies for which data was available in the Organization for Economic Cooperation and Development (OECD).

• OECD housing data for 2010-2021 shows that a one percent increase in home prices can add on average up to 0.5 percentage points to housing rent growth.
• Given the average housing rent contribution to consumer price index, 0.12 percentage points (observed in OECD countries in 2019), and the OECD average housing rent growth of 2.6% in 2020, we estimate that a one percent increase in home prices on average adds around 0.02 percentage points to the general consumer price index, due to the increase in prices for rental housing.
• According to OECD data, home prices in OECD countries have increased by 11.2% during the pandemic (Q4 2019 to Q1 2021), which could account for 0.26 percentage points (or 11%) of the 2.2% CPI growth in OECD economies during the same period.